- SOS (NYSE:SOS) is down to 47 cents per share compared to over $7 per share in March 2021.
- The company recently sold over 35 million American depositary shares at 56 cents to raise new funds.
- Management’s lack of vision and clarity makes SOS stock a tough buy.
SOS Limited (NYSE:SOS) is a high-tech company headquartered in Qingdao, China. SOS stock provides a wide range of offerings, including data mining, data analysis and marketing services, as well as solutions to insurance companies. But SOS stock has been stumbling for a year and shows no sign of regaining its feet.
In January 2021, SOS jumped into the spotlight when it announced that the company would be turning to crypto mining. The plan started with the acquisition of over 15,000 mining rigs, costing the company $20 million. In the course of the same time, Bitcoin (BTC-USD) and Ethereum (ETH-USD) — the two leading cryptocurrencies that now hold a combined market capitalization of around $1 trillion — were positioned at all-time highs. Commentators, investors and stakeholders understood the rationale.
Nevertheless, industry experts have been arguing in the background that SOS has not decided on a specific set of products to focus on and is too dependent on the volatile price of cryptos. These problems continue to hold it back.
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Historic Financial Performance
SOS stock is listed on the New York Stock Exchange (NYSE). In the last year, the company has lost almost 90%. The current market capitalization of SOS stock is now $114 million and SOS stock has an enterprise value of $-69 million.
One thing to note that makes it challenging for investors to invest in SOS stock is volatility. Data shows one-year volatility of 97.75 compared to SPDR S&P 500 ETF (NYSEARCA:SPY) one-year volatility of 15. In essence the stock is almost 7x more volatile than the market.
During the same period, the company has underperformed the market by almost 90%.
The chart below demonstrates performance returns:
What Is Going On With SOS Stock?
One could argue that at least SOS stock is operating within an electrifying industry. Just last week, the Bitcoin conference in Miami drew in excess of 25,000 people. The aim was to “discuss and glorify cryptocurrencies.” Peter Thiel, Cathie Wood, Anthony Scaramucci and Michael Saylor were amongst the influential guests and speakers.
However, this past March the company raised outside capital from accredited investors in the form of American Depositary Shares (ADS). During the transaction, the company sold $20 million of stock in order to use the proceeds for further global expansion.
This is not the first time that the company issued extra stock. In February 2021, SOS stock raised $110 million by selling shares at a 21% discount to their price at the time. The money was slated to fuel the company’s crypto venture. SOS stock fell about 17% on the news.
It’s not surprising. Inevitably, when a company decides to sell stock to raise cash, current shareholders lose trust and conviction. Selling stock in this manner can erode management’s credibility and indicate the lack of a clear corporate strategy and product roadmap.
Chinese policymakers and legislators haven’t been making it easier for SOS stock. Last year, China banned crypto on two separate occasions. Firstly, the Chinese government disallowed financial institutions from doing any transactions in crypto. Thereafter, in September 2021, Chinese regulators banned crypto mining and cryptocurrencies overall. Therefore the company has been “pushed” to branch out in North America, where crypto laws and communities are more supportive and favorable.
Should You Invest In SOS Stock?
There are various underlying aspects that will determine the long-term viability of the company. The most important is the overall cryptocurrency adoption rate. That ultimately determines crypto value and demand for mining.
Secondly, watch the way regulators in the U.S. will treat crypto as an investment asset class, and thirdly, how crypto/blockchain companies align with environmental, social and governance ideas (ESG). Unless crypto is regulated and is verified as ESG compliant, large institutional investors will not be able to allocate capital to blockchain and crypto related asset classes.
In other words, there needs to be a net inflow from institutional investors for the stock to do well.
The bottom line is that crypto usage will be highly correlated to SOS stock balance sheet, considering its current business model. Therefore the future is looking foggy for the company. And its historic performance and trust in management is not strong enough to support an investment into the stock. The official website of the company does not provide the typical transparency that listed equities do, and so the revenue segregation and future path is not clear enough for my taste.
Adding to the problem, the company received a letter from the NYSE in February saying it needed to get its share price back over $1 or it could face delisting.
In light of all these issues, I have strong doubts about the long-term performance of the company. I’d stay away from SOS stock for now.
On the date of publication, Jonathan Tang did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.